Fool.com: Hasbro Tries Some Practical Magic (News) September 9, 1999

Hasbro Tries Some Practical Magic

By Dave Marino-Nachison (TMF Braden)
September 9, 1999

Toymaker Hasbro (NYSE: HAS) added a few interesting cards to its deck today, announcing plans to buy privately held fantasy games and literature company Wizards of the Coast for $325 million.

Renton, Washington-based Wizards of the Coast -- founded in 1990 by a systems analyst who grew tired of analyzing systems -- is probably best known for its Magic: The Gathering card game. It has grown from a grassroots phenomenon into a worldwide business empire.

The success of Magic spurred founder and CEO Peter Adkison to branch out. The company now has several other enviable lines of business, including the "Gotta Catch 'em All" Pokémon card game and TSR Inc.'s famous "Dungeons & Dragons" franchise, bought in 1997. Wisely, Hasbro plans to keep Adkison and his management team on board and in Renton.

"Wizards of the Coast will enable us to significantly expand in the fast-growing games arena, which is a cornerstone of our growth strategy for the new millennium," said Hasbro CEO and Chairman Alan Hassenfeld. "This acquisition brings us not only incredibly popular content and exciting future gaming initiatives, but also a visionary senior management team and creative talent, expanded distribution channels and an opportunity to participate in location-based entertainment."

That latter element is the bricks-and-mortar embodiment of the move to the Internet many game manufacturers believe will be the industry's driving growth force into the next century. Wizards of the Coast is planning a national store buildout that will incorporate not only retail but a social and gaming environment for users of card, board, and computer games.

Investors have probably already noted a few connections with the companies that were already extant: One of Hasbro's subsidiaries is MicroProse, which makes several Magic games -- some of which allow long-distance Internet battles as well as clashes against the computer. Hasbro also makes a ton of Pokémon stuff.

"There is no end to the opportunities we see from cross-fertilization of our respective game portfolios, including the fast-growing areas of interactive software and online gaming," Hassenfeld continued. "Plus, the year-round nature of these businesses will help to balance the seasonality of our diversified portfolio."

What's perhaps more important for investors to realize, though, is that the nature of gaming in this country is changing faster than you can say "Pikachu." While video and computer gaming has been big business for many years, other forms of fantasy-based competitive pursuits have traditionally been the province of, to put it bluntly, prepubescents and the physics club -- physics club.

Thanks in large part to the kind of cross-pollination Hassenfeld spoke of -- as well as crossover media efforts like Acclaim Entertainment's (Nasdaq: AKLM) Turok game/comic book, Nintendo's Pokémon multimedia megalith, and Squaresoft's Final Fantasy game franchise that has rated an upcoming feature film -- fantasy gaming has gained considerable mainstream mindshare in recent years.

Many might recall a recent Magic advertising campaign, which in softly toned television spots marketed the game essentially as an alternative to Pictionary rather than a niche-targeting escapist lark. Whether it convinced me is something else -- but even I can't deny that 10 years ago TSR would never have attempted such a campaign, and I consider that a telling sign.

Aided by improvements in technology that have allowed for more vivid images and environments and a blurring of new and traditional entertainment media, what might have been considered fringe at one time is sliding into the collective conscious at a rapid pace. To wit: Companies like Wizards of the Coast hold worldwide Magic tournaments with big-money payouts and airtime on ESPN2.

Having a strong foothold in this new entertainment business will likely prove immensely profitable -- Hasbro expects this deal to boost earnings next year -- in coming years, and investors should keep the big picture in mind when looking at players in this industry.

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